6AG502 Business Report University of Derby

Part 1

1 Literature to present an overview on EMH and Event analysis

According to Cronk, (2017), the efficiency market hypothesis has been under the academic and professionals considerations from a long time. The research operated insight these techniques which will has come from the multiple reasons. Therefore, this will be useful for the all the investors such as from the private and institutional stakeholders. McCormick, Salced, Peck and Wheeler, (2017) stated that, an efficiency theory will be helpful in modern finance as to have appropriate increment in the growth. Moreover, the overview of the market and firm will be analysed as to have appropriate analysis on such issues. Similarly, there are two hypotheses which will be helpful in building the adequate analysis over the market as to ascertain the relationship among the trading strategies and instruments with the price efficiency and inefficiency.

According to Kimani and Simba, (2017), impacts of various factors in the business activities which will be helpful in building the abnormal performance index. Thus there has been preparation of two hypotheses as:

H0: There is no significant relationship among exploit pricing efficiencies and acquisition.

H1: There is a significant relationship between Pricing efficiencies and acquisition.

2. Conducting the market regression

Regression analysis of British American Tobacco and S&P 500

SUMMARY OUTPUT	Â
Â	Â
Regression Statistics
Multiple R	0.240949445
R Square	0.058056635
Adjusted R Square	0.050810917
Standard Error	0.004269344
Observations	132

 

ANOVA	Â	Â	Â	Â	Â
Â	df	SS	MS	F	Significance F
Regression	1	0.000146	0.000146	8.012544	0.005384
Residual	130	0.00237	1.82E-05	Â	Â
Total	131	0.002516	Â	Â	Â

Interpretation: In relation with analysing the regression between the two factors such as S&P500 index and share value of BAT which will be helpful in determining the appropriate analysis. Thus, the outcomes derived from such operations which will be helpful to the firm as to have improvements in the operations (British American Tobacco, 2017). The R-value is 0.24 which comes between the ranges of -1 to 1. Therefore, it indicates the positive sign as the null hypotheses will be followed here.

3. Measuring the Expected return, abnormal return and cumulative abnormal return

Expected return, Abnormal return & Cumulative abnormal return:

Date	S&P	BAT	Abnormal return	Cumulative return
1/17/2017	0%	0%	0%	0%
1/18/2017	0%	1%	-1%	-1%
1/19/2017	0%	2%	-3%	-4%
1/20/2017	0%	1%	0%	-3%
1/23/2017	0%	0%	0%	-1%
1/24/2017	1%	1%	0%	0%
1/25/2017	1%	2%	-1%	-1%
1/26/2017	0%	1%	-1%	-2%
1/27/2017	0%	0%	0%	-1%
1/30/2017	-1%	0%	0%	0%
1/31/2017	0%	0%	0%	0%
2/1/2017	0%	-1%	1%	1%
2/2/2017	0%	1%	-1%	0%
2/3/2017	1%	1%	0%	-1%
2/6/2017	0%	0%	-1%	-1%
2/7/2017	0%	0%	0%	-1%
2/8/2017	0%	1%	-1%	-1%
2/9/2017	1%	0%	1%	0%
2/10/2017	0%	0%	1%	1%
2/13/2017	1%	0%	1%	1%
2/14/2017	0%	-1%	2%	2%
2/15/2017	0%	1%	0%	1%
2/16/2017	0%	0%	0%	-1%
2/17/2017	0%	1%	0%	-1%
2/21/2017	1%	0%	1%	1%
2/22/2017	0%	0%	0%	1%
2/23/2017	0%	0%	0%	0%
2/24/2017	0%	1%	-1%	-1%
2/27/2017	0%	0%	0%	-1%
2/28/2017	0%	0%	-1%	-1%
3/1/2017	1%	0%	2%	1%
3/2/2017	-1%	2%	-2%	-1%
3/3/2017	0%	0%	0%	-2%
3/6/2017	0%	-1%	1%	1%
3/7/2017	0%	0%	0%	1%
3/8/2017	0%	1%	-1%	-1%
3/9/2017	0%	0%	0%	-1%
3/10/2017	0%	0%	0%	1%
3/13/2017	0%	0%	0%	0%
3/14/2017	0%	1%	-1%	-1%
3/15/2017	1%	1%	0%	-1%
3/16/2017	0%	0%	0%	0%
3/17/2017	0%	-1%	1%	0%
3/20/2017	0%	1%	-1%	0%
3/21/2017	-1%	0%	-1%	-2%
3/22/2017	0%	0%	0%	-1%
3/23/2017	0%	0%	0%	0%
3/24/2017	0%	0%	0%	0%
3/27/2017	0%	2%	-2%	-2%
3/28/2017	1%	-1%	2%	0%
3/29/2017	0%	0%	0%	2%
3/30/2017	0%	2%	-2%	-1%
3/31/2017	0%	0%	0%	-2%
4/3/2017	0%	0%	0%	0%
4/4/2017	0%	0%	0%	0%
4/5/2017	0%	0%	0%	0%
4/6/2017	0%	1%	0%	-1%
4/7/2017	0%	-1%	0%	0%
4/10/2017	0%	1%	-1%	-1%
4/11/2017	0%	0%	0%	-1%
4/12/2017	0%	1%	-1%	-1%
4/13/2017	-1%	0%	0%	-2%
4/17/2017	1%	0%	1%	0%
4/18/2017	0%	-2%	2%	3%
4/19/2017	0%	-1%	1%	3%
4/20/2017	1%	1%	0%	1%
4/21/2017	0%	0%	0%	0%
4/24/2017	1%	2%	-1%	-1%
4/25/2017	1%	-1%	1%	0%
4/26/2017	0%	0%	0%	1%
4/27/2017	0%	-1%	1%	1%
4/28/2017	0%	0%	0%	2%
5/1/2017	0%	1%	-1%	-1%
5/2/2017	0%	-1%	1%	0%
5/3/2017	0%	0%	0%	1%
5/4/2017	0%	1%	-1%	-1%
5/5/2017	0%	1%	0%	-1%
5/8/2017	0%	0%	0%	0%
5/9/2017	0%	0%	0%	0%
5/10/2017	0%	0%	0%	-1%
5/11/2017	0%	1%	-2%	-2%
5/12/2017	0%	0%	0%	-1%
5/15/2017	0%	2%	-2%	-1%
5/16/2017	0%	0%	0%	-1%
5/17/2017	-2%	-2%	0%	0%
5/18/2017	0%	0%	0%	0%
5/19/2017	1%	1%	-1%	0%
5/22/2017	1%	-1%	1%	1%
5/23/2017	0%	0%	0%	1%
5/24/2017	0%	1%	-1%	-1%
5/25/2017	0%	2%	-1%	-2%
5/26/2017	0%	-2%	2%	0%
5/30/2017	0%	1%	-1%	1%
5/31/2017	0%	0%	0%	0%
6/1/2017	1%	1%	-1%	0%
6/2/2017	0%	0%	0%	0%
6/5/2017	0%	1%	-1%	-1%
6/6/2017	0%	-1%	1%	0%
6/7/2017	0%	-1%	2%	2%
6/8/2017	0%	0%	0%	1%
6/9/2017	0%	-1%	1%	1%
6/12/2017	0%	-1%	1%	2%
6/13/2017	0%	1%	0%	1%
6/14/2017	0%	0%	0%	0%
6/15/2017	0%	1%	-1%	-1%
6/16/2017	0%	1%	-1%	-3%
6/19/2017	1%	0%	1%	0%
6/20/2017	-1%	0%	0%	0%
6/21/2017	0%	-1%	1%	1%
6/22/2017	0%	0%	0%	1%
6/23/2017	0%	0%	0%	0%
6/26/2017	0%	-1%	1%	1%
6/27/2017	-1%	-2%	1%	2%
6/28/2017	1%	-2%	3%	4%
6/29/2017	-1%	0%	-1%	2%
6/30/2017	0%	0%	0%	-1%
7/3/2017	0%	-1%	1%	1%
7/5/2017	0%	2%	-1%	0%
7/6/2017	-1%	-1%	0%	-1%
7/7/2017	1%	1%	0%	0%
7/10/2017	0%	0%	0%	0%
7/11/2017	0%	-1%	0%	1%
7/12/2017	1%	2%	-1%	-1%
7/13/2017	0%	0%	0%	-1%
7/14/2017	0%	0%	1%	1%
7/17/2017	0%	1%	-1%	0%
7/18/2017	0%	-1%	1%	1%
7/19/2017	1%	1%	0%	1%
7/20/2017	0%	3%	-3%	-3%
7/21/2017	0%	1%	-1%	-4%
7/24/2017	0%	-1%	1%	0%
7/25/2017	0%	-2%	3%	4%

4. Analysing the significance test with using various

t-Test: Paired Two Sample for Means
Â	Â	Â
Â	0	0
Mean	0.000684	0.001137
Variance	1.93E-05	9.43E-05
Observations	131	131
Pearson Correlation	0.240845	Â
Hypothesized Mean Difference	0	Â
df	130	Â
t Stat	-0.53846	Â
P(T<=t) one-tail	0.295591	Â
t Critical one-tail	1.656659	Â
P(T<=t) two-tail	0.591183	Â
t Critical two-tail	1.97838	Â

 

Interpretation: In relation with analysing the significant relationship among the prices and market value of the firm it can be said that there will be follow of null hypotheses. Therefore, it insists that there will be no significant relationship in between the prices and the share value. Thus, the business will set prices of the shares will not help in improving the market value. Moreover, there is need to have changes in the operational activities which improves the cost management as well as brings the appropriate outcomes.

5 Interpreting the data analysed to reflect the insight from EMH

In relation with analysing the data measured in the EMH techniques it can be said that there are null hypotheses which is active. Thu, it indicates that there is no significant relationship among the prices and the market value of the firm (Schwartz, Wilson and Goff, 2018). On the other side, it will be helpful as if the business will have increment in the operational activities. The regression value derived from the analysis is adequate as it comes between the range of -1 to 1.

6. Implicating the use of two factor models in enhancing the regression

The implication of two factors to have effective outcomes there has been consideration of S&P500 pricing index as well as BAT’s share prices which will be effective and adequate as to have appropriate analysis.

Part 2

1. Ascertaining the trading strategies and risk management tools in designing the principles

Trading strategies:

In relation with developing business on wider level there is needed to consider development of business operations. Moreover, British American Tobacco is acquiring the 57.8% of stakes in Reynolds American Inc. which is needed to have appropriate development or products and pricing up to the consumer satisfaction. Similarly, there are various kinds of trading strategies such as:

• Day trading: In relation with analysing the share and market value of the entities there has been trading relevant with the securities of business (Ong and Puteh, 2017). Therefore, the trading of securities will be held during whole day and the night trading will be closed.
• Position Trading: There has been use of longer-term charts, which indicates that the larger trading will be done by the market giants in the environment (Solaiman, Kadar, Wanke and Azad, 2017). This is also known as the active trading which will be effective and appropriate in terms of developing the business in competitive environment.
• Swing Trading: This is the trading technique which ascertains that there will be variations in the prices that indicates the volatility of the new trends. Therefore, the new trends will be made in respect to have satisfactory gains in the market. Similarly, these are the traders which were known as the wing traders.
• Scalping: This is the pricing technique which determines by the traders to have two prices such as Bid pricing and ask pricing. Moreover, the implication of such techniques will be helpful in determining the adequate analysis through various operations on which scalper attempts to hold their prices for a small period. This strategy is helpful in ascertaining the buying of securities at Bid prices and selling it on ask price.

Risk management tools:

There has been implication of the risk management tools which will be effective and helpful to the professionals in terms of having the appropriate analysis over risk associated in industrial operations. There are several qualitative terms and techniques that will be helpful in determining the risks involved in entity.

• Risk probability and analysing impacts: In relation with having the satisfactory outcomes from the business operation there is need to have ranking over the actives. It helps in analysing the business risks as well as making the effective observation over costs, quality and performance.
• Impact matrix and probability: There is need to have rating over risks which will be beneficial in accurate qualitative analysis and matrix of risks.
• Categorisation: In order to develop the grouping risks as per common roots of the risks, which will be helpful in making appropriate strategies that will be helpful and effective for overcoming with such obstacles (Cronk, 2017).
• Assessment of urgency: The important and essential tasks will be completed accurately as per ranking the risks. Therefore, the urgency of risk will be assessed as per the risk sensitivity.
• Expert Judgment: The experience of an individual who was involved in the similar kinds of risks which will be effective and helpful in terms of overcoming with the operational need of business.

2. Implicating the use of long-short strategy as well as analysing total return for such strategies

Long-short term strategy:

This is an investment strategy which enables the investors to analyse the firm’s long term and short-term efficiency in meeting debts. Moreover, this analysis will be helpful in measuring capabilities in making the payments for dividends.

Total Returns:

In relation with managing the returns associated with the share values of the firm there are various operations which will be helpful in analysing the appropriate returns (Ong and Puteh, 2017). Similarly, the rate of return acquired by BAT is quiet favourable as it reflects the positive outcomes which will be effective in meeting the debts of the entity.

3. Analysing the statistics to demonstrate the volatility and correlation amongst the trading pairs

In relation with analysing the correlation between the S&P500 share rate of return and BAT’s rate of return there will be analysis which is as follows:

Â	Column 1	Column 2
Column 1	1	Â
Column 2	0.240949	1

Interpretation: By considering the above analysis it can be said that there are significant relationship among the pricing efficiency and the market value of the businesses. Thus, if the professionals make changes in the share prices that there will be impacts over the changes in financial position of the entity.

4. Illustrating the avers price movement on the basis of various terms

1. Unexpected downside movement for the long position:

The share value determines changes in the position of a firm in the external market. Moreover, there has been analysis through various operations which will be effective and adequate solution to the operations. The downside of the long-term security will be a threat to the business in terms of poor operational managements as well as ineffective pricing strategies. Therefore, the shareholders are not having that much benefit from thee operations which will be fruitful in increasing the market value of business.

1. Unexpected Upside movement for short position

There has been unexpected upside moment of the short term securities will be challenging for the business as to have management of the capital funds in the business to meet all the requirements. Therefore, these are the risks which are in associated with the business operations that will be effective and have the not adequate outcomes.

5 In retrospect the use of combination with maximising profit

To maximise the profitability of the business there is need to have appropriate analysis through various operations which will be effective and adequate for the firm to have better analysis over the market securities.

Conclusion

On the basis of above study it can be said that there are various statistical observations which will be helpful in analysing the share market value and the pricing index of S&P500. Thus, after analysing all the factor it can be concluded that there are null hypotheses will be followed which indicates that there is no significant relationship among the prices of the shares and market value of a firm. Thus the acquiring of Reynolds American Inc. will have positive impacts over the capital growth as if the operational activities as well as profitability were strong.

Reference

• Cronk, B. C., 2017.How to use SPSS®: A step-by-step guide to analysis and interpretation. Routledge.
• McCormick, K., Salcedo, J., Peck, J. and Wheeler, A., 2017.SPSS Statistics for data analysis and visualization. John Wiley & Sons.
• Kimani, J. G. and Simba, F., 2017. Effect of Practical SPSS Training on Students’ Research Competence; A Survey of Jomo Kenyatta University of Agriculture and Technology Mombasa Campus Postgraduate Students.African Journal of Education and Practice.2(2). pp.1-15.
• Schwartz, B. M., Wilson, J. H. and Goff, D. M., 2018.An easyguide to research design & SPSS. SAGE Publications.